On Thursday, China Evergrande Group wired funds to a trustee account for a dollar bond interest payment owed Sept. 23, a source told Reuters on Friday, days before a deadline that would have jumped the embattled developer into formal default.
On Friday, the source confirmed a story in the state-backed Securities Times that the company had sent $83.5 million in coupon payments to a trustee account at Citibank on Thursday, enabling it to pay out to all bonds holders before the grace period expires on Oct. 23.
“They seem to be avoiding short-term default, and it’s a bit of a relief that they have managed to find liquidity,” said a Hong Kong-based restructuring lawyer serving some bondholders.
“But still, Evergrande does need to restructure its debt. This payment might be a way for them to get some buy-in with stakeholders before the heavy work needed on the restructuring.”
Evergrande did not instantly reply to Reuters request for comment. Citi refused to comment.
On Thursday, news of the wired payment arrived a day after financial information provider REDD stated that the company had acquired more time to pay a defaulted bond issued by Jumbo Fortune Enterprises and endorsed by Evergrande.
Recently, many Chinese officials have attempted to comfort investors, saying that creditors’ interests would be preserved. Market participants nevertheless displayed shock at the news of the payment.
“This is a positive surprise,” said James Wong, portfolio manager at GaoTeng Global Asset Management Ltd, combining many had presumed a default.
The news would increase bondholders’ confidence, he said, as “there are many coupon payments due ahead. If Evergrande pays this time, I don’t see why it won’t pay the next time.”
Evergrande missed two coupon payments on its dollar bonds on Sept. 23 and Sept. 29, starting the clock on 30-day grace periods for price. Non-payment of interest for 30 days would occur in a formal default by the company and trigger cross-default provisions for other Evergrande dollar bonds.
Evergrande’s dollar bonds rose on Friday morning, with its April 2022 and 2023 notes leaping more than 10%, according to data provider Duration Finance.
Evergrande’s shares climbed about 4%, a day after the resumption of trade following a more than two-week suspension pending the declaration of a discarded stake sale in its property management unit.